This is a blog by a former CEO of a large Boston hospital to share thoughts about negotiation theory and practice, leadership training and mentoring, and teaching.

Thursday, October 28, 2010

So that's how the rates are set

The Wall Street Journal published a very important article this week. Written by Anna Wilde Mathews and Tom McGinty, it is entitled, "Secrets of the System: Physician Panel Prescribes the Fees Paid by Medicare.

Here's the lede:

Three times a year, 29 doctors gather around a table in a hotel meeting room. Their job is an unusual one: divvying up billions of Medicare dollars.

The group, convened by the American Medical Association, has no official government standing. Members are mostly selected by medical-specialty trade groups. Anyone who attends its meetings must sign a confidentiality agreement.

Yet the influence of the secretive panel, known as the Relative Value Scale Update Committee, is enormous. The Centers for Medicare and Medicaid Services, which oversee Medicare, typically follow at least 90% of its recommendations in figuring out how much to pay doctors for their work. Medicare spends over $60 billion a year on doctors and other practitioners. Many private insurers and Medicaid programs also use the federal system in creating their own fee schedules.

By coincidence, one of our doctors had just explained this to me a few days earlier. After reading the article, he jokingly and then seriously commented:

The only thing missing from the description is the cigars. Actually they make it sound more shady than truly exists. The recommendations from this committee are made to Pro-PAC (Prospective Payment Assessment Committee), who then set the Medicare fee structure.

Procedures have always won out over E&M time.

Another doctor friend put it this way: I think that it is the core of much evil.

Why the harsh reaction? Well, it is inherent in this statement: "Procedures have always won out over E&M time." Evaluation and management (E&M) services refer to visits and consultations furnished by physicians. You might want to think about this as "old-fashioned doctoring." The MD talks, listens, probes, and uses his or her cognitive skills to figure out what's wrong with you and what might be done about.

It contrast, procedures are things that are done to you mechanically, like surgery or other invasive techniques.

Both are important to medical care. But which is more important? One can certainly make a case that a primary care doctor's, nephrologist's, or neurologist's E&M can make a significant difference in the course of treatment of a patient. Indeed, those doctors' diagnostic skills can often obviate the risk, cost, and disruption of interventional procedures. This is not to say that people who perform procedures are not also important: Indeed their abilities are essential and determinative in many cases. However, the process described in the article results in greater values being ascribed to the procedures than to the cognitive services. And greater value translates into higher payment rates.

It may be that the committee's skewed membership leads to this result. It might be, too, that there is some historical basis for a payment system of this sort. Whatever the reason, it is clearly time to undo the bias.

The future for health care in the United States will be based in great measure on employing cognitive skills to bring about prevention, chronic disease management, and overuse of the medical system. The payment system should reflect that high value.

Unfortunately, this is viewed as a zero sum game. Under Washington rules, if cognitive specialists are paid more, proceduralists must be paid less so that the presumed overall level of appropriations will be held constant. But that is the static case, one that assumes the same number of procedures will be carried out. In the dynamic case, paying cognitive specialists better so they can spend more time with patients will reduce the need for procedures and thereby reduce overall health care expenditures, even if the proceduralists are not taken down a notch.

Very interesting post, and it highlights a reason I don't believe in rate setting in health care. I speak as a former rate setter. Unlike natural monopolies, which can require government action to address economies of scale, or benefit from government action to " internalize the externalities", health care is so incredibly complex that government rate setting for services generally just provides leverage for some special interest group to put a "thumb on the scale" and interfere with decisions that should be made by other parties based on very different considerations.

I could illustrate with stories from my days as a rate setter, which have motivated me to advocate for a sort of new managed competition among local integrated care organizations which have responsibility for the health, costs, and satisfaction for an enrolled population. I realize that model faces challenges too, but I predict it has a much higher likelihood of improving care and reducing costs.

I am not a physician but a patient that is well cared for by my primary care physician. How is it that primary care providers are expected to know a lot about every system, manage every system, expected to do it faster, and do every type of paper work imaginable for patients (not meaning the usual visit notes); and be reimbursed far less than their colleagues in specialty areas? Specialists are often given longer appointment visits to consult or treat one system. They do not have half the paper work primary care physicians have, they often turf everything back to the PCP (including prior authorizations on medications they have prescribed); and yet are reimbursed at rates substantially higher.

How has it come to be that PCPs aren’t given the same leverage to sit on panels to discuss reimbursement? Their colleauges aren't being mutually respectful when they fear having primary care providers on panels that decide reimbursement. That is selfish and send the message to primary care providers that what they do is far less important. As a patient, this infuriates me. Can't imagine the impactt it has on PCP's. No wonder why there is a dearth of primary care providers.

Interesting, in this light, to read yesterday about Harvard's new center for building up primary care, including the $30 million gift to make it happen. Wonder if they'll have a department of pricing strategy?

OK, let's pay every doctor exactly the same salary no matter what specialty they are. Result: no one will spend the extra years in training to become a specialist/develop procedural skills/etc. or be willing to spend all the extra money on their more expensive malpractice insurance. "Procedures" will go away and medical care will be SO much cheaper--one might even see 1930s health care costs (and mortality rates.)Better idea: take the billions of health care dollars spent on insurance administration (everything from the insurance company's CEO salary down to their advertising budget, not to mention all the extra employees each doctor must hire to "manage" all the claims, referrals, preauthorizations, complex billing, etc.) and use those dollars to raise the compensation for E&M. Suddenly health care dollars are all going to actual health care, instead of ancillary costs, AND the extra E&M makes health care less expensive. PCPs are sufficiently better compensated that more med school grads go into primary care, eliminating that shortage. Win-win-win. If only I knew how to make such a system, and if only the health insurance cabal weren't so powerful.

Obviously, this only applies to fee for service reimbursement. Most all multispecialty groups do not exclusively use RVUs in their internal formulas. Also, you have to consider fixed and variable overhead.

The problem is that this system has created a chronic underfunding of primary care for several years now, with little research into mechanisms that effectively treat chronic illness or that keep people well. Although some studies show where primary care is availible, costs are lower, we know very little about outcomes.

This is why I have derided hospitals as the major driver and cost centers for much of the inflation in health care, since they are the part of the health care system that adopts this early technology and then heavily advertises it as cutting edge, despite lack of proof otherwise. Your prior post on the Da Vinci system is the best example of this.

I think you should likely be able to see this clearly by how much of your hospital systems budget goes to acute care in a hospital setting vs how much you devote to outpatient primary care and preventive health programs.

So until we have accountable care organizations that are paid a set amount of dollars, we will continue to see the expansion of often worthless (at least in respect to older treatments) and more expensive procedures and drugs that will drive our health care system to bankruptcy.

It's actually even worse than the WSJ article described. Not only is the membership skewed and the data they use skewed but the notion of the "stress" of a procedure is a farce and the process cements in what is wrong with health care. See http://www.jhartfound.org/blog/?p=1443and http://www.jhartfound.org/blog/?p=1454

Money is not the only issue in the demise of primary care. Even in health care systems where physicians are salaried there are tremendous differences between the number of hours physicians need to work in order to take care of patients needs. In primary care in order to handle a large patient panel the expectations are unlimited. Many more hours per week spent on messages, labs, e-mails from patients, etc. Specialists usually are paid extra if they come in at night for a procedure but if a primary care physician is working on their panel management or messages from home they are not reimbursed for the extra time they spend. Money would help encourage people to go into primary care as would subsidies to pay back med school costs.